Policy Documents

Wireless Taxes and Fees Continue Growth Trend

Scott Mackey –
October 29, 2012

The tax and fee burden on wireless consumers continued its steady upward march between 2010 and 2012. The average burden on consumers increased from 16.26 percent in July 2010 to 17.18 percent in July 2012, a 5.5 percent increase in just two years. Wireless consumers now pay the highest combined tax and fee burden since I began tracking rates in 2003, more than 3 percentage points above the 14.13 percent rate in 2007, which marked the low point for wireless taxes and fees during the last decade. Wireless customers now pay taxes, fees, and surcharges nearly two and a half times higher than the average 7.33 percent general sales tax rate imposed on other taxable goods and services.

State and local wireless tax and fee burdens rose modestly from 2010 to 2012, from 11.21 percent to 11.36 percent. However, the primary source of the growing wireless consumer burden during the last two years is the continued increase in the federal Universal Service Fund (USF) contribution rate and the corresponding surcharge imposed on consumers to cover that obligation. The federal USF surcharge has nearly tripled over the last decade, from 2.07 percent in 2003 to 5.82 percent in 2012. In fact, the 5.82 percent federal USF rate in 2012 almost exceeds the combined federal rate imposed in 2005, when the 3 percent federal excise tax still applied to wireless service.

Even as average monthly wireless revenue per line continue to drop, taxes, fees, and surcharges on wireless consumers continue to rise. According to CTIA— The Wireless Association, the average wireless customer spent about $47 per line per month in 2012, down from $48.16 in 2010. Unfortunately for wireless consumers, taxes went the other direction. The study found that the average wireless customer now pays about $8.07 per line per month in wireless taxes, fees, and surcharges — up from $7.84 per line per month in 2010.

Nebraska continues to have the highest combined wireless tax rates in the country — 24.49 percent. Washington state retained its number two position with a combined rate of 24.44 percent. Rounding out the top five highest states are New York (23.67 percent), Florida (22.41 percent), and Illinois (21.76 percent).

New data from the Centers for Disease Control and Prevention (CDC) show that record numbers of Americans ‘‘cut the cord’’ during the recent recession and its aftermath, giving up their landlines in favor of wireless service only. The same data also show that a disproportionately high percentage of wireless-only households are low-income households. Unfortunately, those wireless consumers bear a disproportionately high burden from these excessive taxes and fees on wireless service imposed by the federal government and many state and local governments. For that and other reasons, national organizations like the National Conference of State Legislatures have urged states to consider communications tax reform. Although study commissions are considering reforms in Delaware, Florida, and Maryland, this study shows that many states have a long way to go to reduce the wireless consumer tax burden to levels comparable to the sales taxes imposed on other goods and services sold in the competitive economy.